Royal Bank of Scotland Group PLC said results will be poor for another two years as it reported an unexpected first-half loss after setting aside $12.62 billion to cover bad loans and declining assets.

"There is every sign that our financial performance over the next two years, at a group level, will be poor due to the severe economic downturn in 2008 and 2009 and consequent impact on impairments and funding costs," Chief Executive Officer Stephen Hester said in a statement Friday.

The company posted a net loss of $1.76 billion. The average analyst had predicted net income of $1.86 billion, according to a Bloomberg survey.

Hester has pledged to reduce loans and sell assets overseas to reduce a balance sheet that rose to $3.72 trillion, exceeding Britain's annual economic production, under predecessor Fred Goodwin. The balance sheet was $2.71 trillion at the end of June.

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